Correlation Between SPDR Portfolio and First Trust
Can any of the company-specific risk be diversified away by investing in both SPDR Portfolio and First Trust at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining SPDR Portfolio and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR Portfolio Intermediate and First Trust Long, you can compare the effects of market volatilities on SPDR Portfolio and First Trust and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in SPDR Portfolio with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and First Trust.
Diversification Opportunities for SPDR Portfolio and First Trust
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between SPDR and First is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Intermediate and First Trust Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Long and SPDR Portfolio is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on SPDR Portfolio Intermediate are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Long has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and First Trust go up and down completely randomly.
Pair Corralation between SPDR Portfolio and First Trust
Given the investment horizon of 90 days SPDR Portfolio is expected to generate 2.03 times less return on investment than First Trust. But when comparing it to its historical volatility, SPDR Portfolio Intermediate is 2.32 times less risky than First Trust. It trades about 0.17 of its potential returns per unit of risk. First Trust Long is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 2,112 in First Trust Long on September 2, 2024 and sell it today you would earn a total of 47.00 from holding First Trust Long or generate 2.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR Portfolio Intermediate vs. First Trust Long
Performance |
| Timeline |
| SPDR Portfolio Inter |
| First Trust Long |
SPDR Portfolio and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR Portfolio and First Trust
The main advantage of trading using opposite SPDR Portfolio and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Portfolio position performs unexpectedly, First Trust can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in First Trust will offset losses from the drop in First Trust's long position.| SPDR Portfolio vs. SPDR Barclays Short | SPDR Portfolio vs. SPDR Barclays Long | SPDR Portfolio vs. SPDR Portfolio Mortgage | SPDR Portfolio vs. SPDR Barclays Intermediate |
| First Trust vs. SPDR Barclays Short | First Trust vs. SPDR Portfolio Intermediate | First Trust vs. SPDR Barclays Long | First Trust vs. SPDR Barclays Intermediate |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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